Wouldn’t it be wonderful if every chapter leader took a mini-CAE course to prepare for their position? You’d see them running around with the latest edition of the Association Law Handbook chatting about antitrust, conflicts of interest, copyright, and all kinds of chapter legal liabilities. Ah, one can dream.
But in reality, it’s up to you to teach them how to minimize risks and keep them on the right side of the law. We’ve reached the tenth post in this series on chapters in crisis. So far, we’ve covered these risks:
- Financial mismanagement
- Financial fraud
- Compliance issues
- Data privacy
- Website disasters
- Struggling chapter leaders
- Leadership succession challenges
- Outsourcing and hiring issues
In this series, we assume chapters are subsidiaries, a situation that brings more risk to National, but also supposedly provides more control. Even if your components are independent, you’ll benefit from the advice we share.
Chapter crisis: legal liabilities
Chapter leaders are busy volunteers with full-time jobs elsewhere. When they have time to work on their chapter responsibilities, they focus their attention on issues of priority, such as the budget or upcoming programs. They are not association experts, so they don’t even know they need to be concerned about other issues—until they get a letter from someone’s lawyer.
Chapters can violate a regulation, infringe on another party’s rights, or do themselves legal harm in a number of ways.
During a meeting or social event, members are overheard complaining about vendor pricing and discussing a coordinated response. Or, the chapter decides to exclude non-members from the annual trade show. In both cases, the chapter can be held liable for antitrust violations. The Association of Legal Administrators Capital Chapter has an excellent description of the Sherman Antitrust Act and areas of concern for associations and chapters.
Conflict of interest
Instead of going through an RFP process for a website developer, the board decides it’d be much easier to just hire the firm run by a director’s relative. But to many people outside the boardroom, that looks like a conflict of interest.
The new website firm found some great photos for the home page. Unfortunately, they copied them from another website. Since the chapter doesn’t have permission to use these copyright photos, they receive an invoice for several thousand dollars from a visual media company that owns the copyright.
One of the directors just got married so he took it upon himself to negotiate the hotel contract for the annual conference. Unfortunately, he made a bad deal on the room block, catering, and A/V. The chapter ended up in the red with all the additional charges.
“You mean we’re not allowed to play our Spotify playlist?” asked the member after the chapter received letters from ASCAP and BMI asking for royalties.
Dealing with chapter legal liabilities
Make sure chapters know what to do if a lawyer comes knocking. If you have a subsidiary relationship, consulting with you is the first thing on their list. If they’re independent, getting legal counsel, pronto, is a must.
Preventing chapter legal liabilities
Knowledge is the key to prevention. Usually chapters fall into legal trouble because they didn’t even know they were getting into trouble.
Training and resources
Volunteer leaders must understand that their responsibilities as officers and directors includes exercising diligence and care in good faith. Besides understanding how to keep their chapter on the right side of the law, they have the duty to:
- Attend meetings
- Understand chapter activities and policies
- Review governing documents
- Record meeting minutes
- Avoid conflicts of interest
- Protect the confidentiality of information during and after their term in office
To help their chapters comply with their Chapter Affiliation Requirements, the Association for Talent Development provides a guide that chapter boards use to discuss and understand risk management best practices and to conduct a risk assessment.
The Case Management Society of America provides resources on legal issues related to chapter operations. The American Association of Law Libraries has three legal training presentations in their online chapter leadership toolkit.
In particular, chapter leaders must know how to spot antitrust risks and maintain compliance. Officers and board members must complete an annual written disclosure of potential conflicts. If new potential conflicts arise, they need to update their disclosure. At each meeting, the board chair should ask directors to review the agenda, declare potential conflicts, and refrain from discussing and voting on the matter.
Identify a nonprofit attorney with association experience for each state and share this list with your chapters.
Insurance requirements for chapters depend on what National’s group policy covers and what National can demand of chapters, based on your relationship. You can ask for proof of coverage in the chapter’s annual report to National.
Chapters should at least have general liability, including event/liquor liability coverage, and Directors and Officers insurance. Other options include:
- Meeting cancellation coverage
- Employee or volunteer dishonesty coverage
- Workers compensation for chapters with staff